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Wednesday, June 05, 2013

The role of the board

The board is a critical ingredient of well functioning public bodies. The board must:

Have a big picture of the objectives of the organisation;

Get pushed, through accountability mechanisms, when these objectives are not being achieved;

Lead the top level thinking about the organisation chart and resource allocation, so that the organisation is constantly reshaped so as to fit its purpose;

Exert direct influence on key policy choices so as to push the management team towards delivering results.

In India, we lack experience with boards that perform these functions. All too often, organisations are little dictatorships where the chief executive holds all power and jealously resists any other influences upon decision making. I have been in situations where a chief executive stoutly claims that a policy discussion is not an appropriate matter for discussion in the board.

The draft Indian Financial Code works hard on establishing high quality boards, on establishing a sound work process for the board including powers of the board, and on setting up accountability mechanisms through which failures of the organisation would feed back to the board. This kind of establishment of the board is a critical component of the governance process.

In the Indian Express yesterday, Ila Patnaik and Shubho Roy reflect on the irrelevance of the RBI board. The Cobrapost expose showed a huge supervisory failure of the RBI. The entire board meeting of the RBI should have been devoted to identifying why this failure took place, and coming out with a list of actions through which things would change in the future. Instead, the board meeting dealt with things like skills development for horticulture.

SEBI does better than RBI on the role and functioning of the board, reflecting the fact that the RBI Act is ancient and these provisions in the SEBI Act are only around 20 years old. But with SEBI also, there is a lot to be desired about the working of the board.

1 comment:

Very interesting issue for discussion. I am not sure I agree with the view that the Cobrapost expose is a reflection of supervision failure by the RBI. This is exactly the approach that led to SEBI once finding fault with NSDL and CDSL for the occurrence of the alleged IPO scam, and then, observers wondering how SEBI would be as guilty if NSDL and CDSL were guilty.

Most of the media literature on money-laundering issues including the issues at the core of the Sahara-SEBI dispute is not informed about the construct of money-laundering prevention laws. There is an exclusive regulatory architecture under the PMLA that is dedicated to administration and enforcement of this law - it goes right into adjudication and even appellate review by a tribunal. The Cobrapost findings are about matters in the domain of this regulatory architecture.

We should ask questions about why these institutions are not being strengthened and their decision-making forums are not active.

(Disclosure: I represent NSDL in its defence against allegations of the "IPO scam")

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